Productivity effect evaluation on market-type environmental regulation: a case study of SO₂ emission trading pilot in China

Taking China’s SO₂ emissions trading pilot (ETP) in 2007, a large-scale market-based environmental regulation as its target, this paper reexamines the strong Porter hypothesis by adopting the method of propensity score matching-difference-in-difference. Research shows the following results: first, SO₂ ETP which provides high flexibility for enterprises in the process of emission reduction, improves total factor productivity (TFP) significantly on the whole. Secondly, the productivity effect of market-based environmental regulation varies to the productivity level of enterprise. For example, the SO₂ ETP has a significant effect on TFP only at 40–80 percent quantile of TFP, and the effect increases at first and then decreases. Thirdly, the financing constraints and bargaining power of enterprises have significant negative moderating effects on the impact SO₂ ETP on TFP, and the moderating effects between state-owned and non-state-owned enterprises exist heterogeneity. In conclusion, it provides reference for the formulation of market-type environmental regulations and the realization of high-quality development for developing countries.